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Here’s why Vodafone share price jumped after the dividend cut

By: Invezz
Image for Vodafone meets expectations

Vodafone (LON: VOD) share price jumped by more than 3.3% on Friday even after the company announced a dividend cut. The stock of the embattled telecoms giant rose to 68.53p after selling its Italian unit.

In a statement, the company said that it would sell its Italian unit to Swisscom in an €8 billion deal as the CEO continued to simplify its operations. This announcement came a few weeks after Vodafone rejected an €11 billion deal by Iliad.

Vodafone will now spend some of these funds to reduce its substantial debt pile and pay shareholders. It will return €4 billion to investors through buybacks and then slash its dividend to 4.5 cents starting in 2025. It paid a 9-cent dividend in the last financial year. The CEO said:

“Our transactions in Italy and Spain will deliver €12 billion of upfront cash proceeds and we intend to return €4 billion to shareholders via buybacks, as part of our broader capital allocation review.” 

Therefore, Vodafone shares jumped because of the sale of its Italian business, a move that will help it reduce its debt pile. At the same time, this sale is part of a strategy to simplify its operations by selling some international operations.

Vodafone also wants to boost its market share in some key countries. It has proposed merging with Three in a bid to create a bigger rival to BT Group in the UK. 

Vodafone will also change its organisation structure in April. It will start reporting its financial results in five segments: Germany, Europe, Africa, Vodafone Business, and Vodafone Investments. 

The new transaction came a month after the company published mixed financial results. Its revenue came in at over €11.3 billion in the third quarter of last year. This was a 2.3% drop from the same period a year earlier. 

Vodafone also reiterated its guidance. It expects that its FY’23 adjusted EBITDA will be €13.3 billion with free cash flow coming in at €3.3 billion. 

Vodafone share price forecastVodafone share price

VOD chart by TradingView

The daily chart shows that the VOD stock price has been in a downward trend in the past few months. It has formed a descending channel, which connects the highest and lowest points since August last year.

Vodafone’s stock movement after the deal by Swisscom was a bit muted because most investors were already expecting it. It is now consolidating at the 50-day and 25-day moving averages while the Relative Strength Index (RSI) has moved above the neutral point.

Therefore, the outlook for Vodafone stock is neutral with a bearish bias. In this case, it may resume the downtrend and retest the lower side of the channel at 62.50p.

The post Here’s why Vodafone share price jumped after the dividend cut appeared first on Invezz

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